Law Commons^™

Corporations - Obligation To Refund Dividends Paid Out Of Capital

Michigan Law Review

The general rule is fairly well established that, where dividends are paid, in whole or in part, out of the capital stock, corporate creditors, being such when the dividend was declared, or becoming such at any subsequent time, may, to the extent of their claims, if such claims are not otherwise paid, compel the stockholders to whom the dividend has been paid to refund whatever portion of the dividend was taken out of the capital stock. This, however, has been modified in the federal courts to the extent that where the dividend, although paid entirely out of capital, was received …